Kotak Mahindra Bank Ltd (Kotak) has acquired BSS Microfinance Pvt. Ltd (BSS) for Rs 139.2 crore ($21 million) in cash, it said on Friday.
The country's fourth-largest private lender said it will buy 99.49% of the Bangalore-based microlender from existing shareholders, subject to regulatory approvals. BSS, which would become a subsidiary of the bank, had a net worth of approximately Rs 73 crore and a microfinance loan book of Rs 483 crore as of 30 June, 2016.
The acquisition gives Kotak Mahindra Bank access to the microfinance segment and BSS’ customer base which currently stands at over 217,000 and a network of 78 branches.
It also offers Kotak Mahindra Bank a reach in the low-income segment. Besides, the bank would be able to access BSS’ customer base and the loan book also qualifies for priority sector lending (PSL). As per norms, banks in India have to lend up to 40% of their total loan book to PSL, which is essentially credit given to small enterprises and low-income group.
Narayan SA, president - commercial banking, Kotak Mahindra Bank, said microfinance is growing fast, catering to a segment of customer base which the bank does not have much exposure to.
Ramesh Bellamkonda, chairman and managing director, BSS Microfinance, said, “Until now, we have been facing constraints in terms of equity capital. The deal not only helps us overcome these constraints, but allows us to offer savings products in conjunction with Kotak Mahindra Bank, once the deal is consummated.''
Bellamkonda, along with two trusts, sold stake to the bank and remaining 0.51% is held by a former employee of the company.
Deloitte and M2i Consulting undertook the financial and business due diligence. Cyril Amarchand Mangaldas was legal advisor while Kotak Mahindra Capital Company was investment banker.
Founded in 1997 by Bellamkonda, BSS has 728 employees with a total income of Rs 49.5 crore in FY2015-16.
BSS was in discussions with Subhash Chandra-promoted diversified business group Essel for Rs 90 crore, but the talks fell through.
In the second-biggest M&A in the Indian banking sector, Kotak Mahindra Bank and ING Vysya merged through an all stock transaction worth over $2.4 billion in 2014.
MFIs emerge as an attractive target
This is not the first time a full-service bank is acquiring or picking a stake in a microfinance firm to increase presence in the tier II and III markets as well as to cater to the financial inclusion agenda.
IDFC Bank picked a 9.99% stake in ASA International India Microfinance Pvt. Ltd for Rs 8.5 crore ($1.3 million) early this year.
In July, it acquired Tamil Nadu-based Grama Vidiyal Micro Finance Ltd as it was planning to become a mass retail bank with a significant footprint and customer base in five years. The microlender operates in 319 locations across 65 districts in six states.
Another private lender RBL Bank picked around 10% stake in Varanasi-based Utkarsh Micro Finance Pvt. Ltd which is in the transition to become a small finance bank. The investment by RBL Bank will make it a preferred partner and will help meet the future lending requirements of Utkarsh as a small finance bank.
In another deal, financial services firm Manappuram Finance Ltd acquired 70% stake in Asirvad Microfinance Pvt. Ltd in December 2014.
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